The cost of raising kids in Australia is on the rise, with a typical middle income family spending around $812,000 to raise two children, up by 50% on 2007 figures when it cost $537,000, according to the latest AMP.NATSEM Income and Wealth Report.
The AMP.NATSEM Income and Wealth Report: Cost of Kids looks at the cost of raising children in Australia, across low, middle and high income groups.
The report finds at every income level it gets more expensive to raise a child as the child gets older, with those aged 18-24 the most expensive, and costing five times as much as babies.
Food and transport account for a sizeable portion of family budgets across all income groups. Middle income families with two children spend 18% of their household budget on food from the ages of 0-24, while transport accounts for 20% of the total bill.
AMP Financial Services Managing Director Craig Meller said the AMP.NATSEM report indicated that now, more so than ever before, parents are spending more of their income raising children.
“The cost of kids for a typical middle income family has risen by around 50% since 2007 but average household incomes over the same period have only grown 25%[1].
“If the proportion of income devoted to raising children is double that of actual income growth, what will the picture look like in the future and what does a scenario like this mean for other areas of our life, such as our retirement?
“The drivers of this increase are complex but two important factors are that families are devoting more resources to private school education and child care and the prices paid for these services are also increasing sharply.
“It highlights the importance of having a sensible budget and savings plan in place to ensure the best for both you and your children,” Mr Meller said.
The report also finds that for the typical second income earner, the financial returns to work as they increase their hours when you factor in the loss of some government benefits, increased child care costs and income tax are very limited.
For example a secondary income earner moving from part-time to full-time work on a gross full-time salary of $70,000 would receive only $32,345 per year, equivalent to an effective tax rate of 75%.
Key Findings
For a middle income family it costs an average $458 per week to raise a child, starting at $133 per week aged 0-4 years and pushing up to $678 per week between the ages of 18-24. The increased cost in older years is attributed to higher spending on food and energy as well as expenses on education, transport and recreation.
Older children cost more
It costs parents five times more to support an 18-24 year old than a 0-4 year old. For low income families, a 18-24 year old will set them back $483 per week compared to $86 for a 0-4 year old, while for middle income families a 18-24 year old costs them $678 per week compared to $133 for a 0-4 year old. For each income group the cost of raising a child increases as the child gets older.
The impact of government assistance
The average low income family is only $46 out of pocket per week, with government benefits providing $274 per week towards the total cost of $320. Government assistance decreases as families earn more, with middle income families receiving $83 a week in assistance with an out of pocket cost of $375, and high income families receiving an average of $1 per week, leaving $733 out of pocket.
Low income families devote a greater proportion of their income to children as they get older
Between the ages of 18-24 low income families allocate 42% of their incomes to their child, compared to 30% and 21% for middle and high income families respectively. Contributors to the increased cost are tertiary education, recreation and transport costs.
Additional children cost less than the first child
On average, families spend $281 per week on one child, $232 on the second child and $193 on the third child. At every income level, the proportion of income spent on three children is about 2.5 times that spent on one child – for low income families 41% of their total income is spent on three children.
Factors influencing a second income earner returning to work
The often high cost of child care, coupled with the loss of government benefits and having to pay income tax can impact whether a secondary income earner will return to work. Over the first 19 hours of work, for every dollar earned, 60 cents in the dollar is lost to lower government benefits, higher personal income tax and child care costs.
Public vs private education
Parents sending their children to private schools spend an average of $216 per week on fees, compared to $12 a week for public schools and $81 for Catholic schools. One of the big movers, education has, on average, doubled in expenditure since 2007 across pre-school, primary and secondary schooling meaning high income families are spending over a quarter of their household budget on education.
Workforce participation of parents
23% of females with children younger than five work full-time, rising to 44% when the youngest child is 15. Regardless of the age of the youngest child, the average participation of fathers in full-time work is 90%.
Food continues to eat into the family budget
Food is one of the highest costs across all three income groups. Low income families spend $89,000 on food for two children from 0-24, accounting for 19% of what they spend on their children. High income families spend up to $167,000 on two children over the same period, although at 15% it accounts for much less of their total spend on children.
Transport, clothing and recreation are the other big spending areas
For low and middle income families transport is their biggest cost at $97,200 and $159,000 of a total household bill of $474,280 and $812,043 respectively. This amounts to 20% of their incomes. Across all income groups, the cost of clothing accounts for about 7% of the total household budget. Middle income families spend the most on recreation at 12% of their total budget.
High income families spend more on education than any other expense
High income families spend 26% of their household budget on child care and education, compared to low income families who spend 6% and 12% respectively. High income families spend $10 on their child’s education and child care to every $1 low income families spend. Overall, education takes up 21% of a high income families child costs, compared to 9% for middle income and 6% for low income families.
NATSEM Principal Research Fellow Ben Phillips said the report focuses on what parents choose to spend, rather than what they need to spend.
“The cost of raising children is significant, however, the report also shows that much of this cost is discretionary with high income families spending much more on their children than low income families,” said Mr Phillips.
This is the third time AMP.NATSEM has looked at the cost of raising children, with the first two reports published in 2002 and 2007.
Since 2002, AMP and NATSEM have produced a series of reports that open windows on Australian society, the way we live and work – and our financial and personal aspirations. AMP publishes these reports to help the community make informed financial and lifestyle decisions and to contribute to important social and economic policy debate.
